Rental property insurance. Replacement or purchase + rehab costs?

6 Replies

I’m purchasing rental properties in Rochester NY but this is a pretty generic question for all locations. What are most investors insuring their rental properties for? Replacement costs or purchase price + rehab + closing costs or something else?


Many insurance companies will want insurance based on replacement costs. Check with your insurance company and see what they want. If they do not care then I normally choose the cheapest option.

50-60k on single family.  70-80k on doubles.  I’m buying from 20-30 on singles.  30-40 on doubles.  

I am not large enough (16 SFRs) to self insure because I need some degree of coverage for catastrophic events.  I can accept the risk for not paying premiums that cover full replacement value.  I insure for Actual Cash Value where I set the coverage amount.  I usually set ACV at around 75% of rebuild cost and the highest possible deductibles.  I also have an umbrella policy to cover litigation.  My feelings are that insurance is an area where scale or deep pockets provides a competitive advantage. 

I think it's totally personal preference. Replacement cost coverage will be more expensive, but some insurance companies will only do that and not offer you other options.

I think more important than which policy is the quality of the insurance provider and whether they will pay you out or not, or how easy they will and not fight you. Normally I would just do the actual cost value coverage rather than replacement (because I don't care if the properties get rebuilt or not), but my favorite insurance company will only do replacement, so that's what I have.

Hey @Zev Dobuler It really will depend on how you are purchasing your properties. If you are buying the property with a loan then you will be required by the bank to purchase a replacement cost policy. If you are buying the property cash then there are no rules and you can insure how ever you would like. If you are buying all cash then I would consider how many homes do you have and what kind of a hit can you sustain. I would suggest buying replacement policies in the beginning and simply increasing the deductible to 2500, 5k and then 10k as you grow and can take on more risk. This will give you the best coverage for Catastrophic losses but also mitigate the cost of insurance as much as possible.

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